ISLAMABAD: Over 80 percent of road user revenues in Pakistan are from fuel-based revenues, involving an amount of $5.680 billion that will be directly affected by the transition to electric vehicles, while this revenue loss will result in the remaining road user revenues being able to cover only 35 percent of the road maintenance needs.
This has been stated by the Asian Development Bank (ADB) in its latest report, “Road maintenance financing and cost recovery options, the future of road user revenue in developing Asia and the Pacific”.
Pakistan has a very large road network of 500,750 km, of which a large portion (40 per cent) is paved. The average road density per area is 65 kms per 100 kms, but the road density per population is relatively low at 21 kms per 1,000 people, as is the road density per GDP at 67 kms per $20 billion GDP.
Road maintenance needs are average and are estimated to amount to $3,472 million per year, equivalent to 0.9 per cent of GDP. The allocated road maintenance budget of $1,527 million covers 44 per cent of needs. Road user revenues are average and amount to $6,897 million, forming two times the estimated road maintenance needs and 1.8 per cent of GDP.
Over 80 per cent of road user revenues are from fuel-based revenues, the highest of any of the ten sample countries, involving an amount of $5,680 million that will be directly affected by the transition to electric vehicles. The loss of this revenue will result in the remaining road user revenues being able to cover only 35 per cent of the road maintenance needs, the report noted.
The revenue from the customs duty on vehicles will also be affected as the rates are set up to 98 per cent lower for electric vehicles, potentially affecting a further $394 million in revenue. The current number of registered electric vehicles is low. The vehicle fleet includes large numbers of 2- and 3-wheelers (79 per cent of registered vehicles) that will likely transition more quickly to electric.
Financial incentives for the import of electric vehicles and the introduction of domestic manufacturing capacity for electric vehicles are expected to further speed up the transition process. However, the lack of charging infrastructure and the limited capacity of the electricity network will form impediments to the transition.
The vehicle fleet in Pakistan consisted of nearly 31 million vehicles in 2020. However, these vehicle registration numbers are understood to be based on annual new registrations and do not appear to take account of the decommissioning of vehicles. They therefore provide an overestimation of the vehicle fleet size and growth rate. The majority of vehicles (79 per cent) are 2- and 3-wheeler motorcycles and rickshaws, and this percentage is gradually increasing.
Passenger cars make up only 13 per cent of the vehicle fleet, only slightly higher than the percentage of buses, trucks and other vehicles. By far the majority of vehicles (68 per cent) are registered in Punjab Province with lower percentages in Sindh (24 per cent) and especially in Khyber Pakhtunkhwa (6 per cent) and Balochistan (2 per cent) where vehicle ownership per capita is much lower. The vehicle fleet has exhibited an average annual growth rate of about 10 per cent from 2016 to 2020, although this growth is mainly in 2- and 3-wheeler motorcycles and rickshaws, with lower growth percentages for light duty vehicles (7 per cent) and other vehicles (4 per cent). These growth rates are likely an overestimation as they do not take account of decommissioning of vehicles. Pakistan has a fast-growing domestic vehicle manufacturing industry that provides a significant portion of new vehicles, producing approximately 300,000 cars and 2 million motorcycles in 2019. This includes both domestic brands as well as assembly of international brands.
The report on Scaling Up Electric Mobility in Pakistan prepared in 2021 estimates that there were 25,000 electric vehicles in the country at the time. Mostly these are 2- and 3-wheelers with few electric cars. The report introduces three possible penetration scenarios for electric vehicles. Under the high scenario, penetration is projected to reach 8.2 million electric vehicles by 2030. Under the medium and low scenarios these projections amount to, respectively, 4.8 million and 2.4 million electric vehicles by 2030.
These scenarios have different impacts on fuel consumption, with the high scenario resulting in an estimated reduction of fossil fuel use by 18 million ton oil equivalent (TOE) over the full period 2021-2030, reaching a reduction in annual fuel consumption of 5.1 million TOE per year by 2030. Under the medium and low scenarios this reduction would amount to 10 million TOE and 5 million TOE, respectively, over the 2021–2030 period. This is equivalent to reductions in annual fuel consumption of 3.0 and 1.4 million TOE by 2030, respectively. Under the medium and low scenarios, the focus would lie on the electrification of 2- and 3-wheelers where the purchase costs are lower (conversion kits for existing motorcycles exist for as little as $1,200) and the lifespan is short. Although such 2- and 3-wheelers use little fuel, the large numbers involved mean that they account for approximately half the road transport fuel consumption in Pakistan.
Pakistan has a National Electric Vehicle Policy, enacted in 2021, that sets a clear target for the introduction of electric vehicles and provides incentives to do so. The policy sets an electric vehicle sales target of 30 per cent for cars and 50 per cent for 2- and 3-wheelers and buses. Although the policy introduces concessions for the import of electric vehicles, it does not provide any purchase incentives for their import and instead focuses on developing domestic production of electric vehicles. Charging infrastructure is also lacking due to the low penetration of electric vehicles. It is assumed that greater purchase incentives are required initially to motivate the purchase of electric vehicles and incentivize the construction of charging infrastructure. The impact on electricity demand is expected to be small, with the high scenario for electric vehicle penetration expected to require an additional 1.7–2.0 gigawatts of electricity, equivalent to 2 per cent of the total electricity consumption. However, it should be noted that this policy is combined with the desire to establish a national electric vehicle manufacturing capacity and only provides incentives for electric vehicles with small battery packs. Most passenger vehicles need larger battery packs to make them useful, the report noted.
Pakistan collects a range of road user revenues. Efforts to create a Road Fund financed by a fuel tax were unsuccessful. The fuel levy is currently set at Rs60/liter ($0.26/liter) for both gasoline and diesel. The federal budget for fiscal year 2023–2024 estimates the revenue from the fuel levy to amount to Rs881 billion, equivalent to $3,075 million.
In negotiations with the International Monetary Fund (IMF), Pakistan has pledged to boost its annual petroleum levy collection to Rs920 billion for the 2023–2024 fiscal year. According to the Pakistan Energy Demand Forecast 2021–2030, in 2021 approximately 90 per cent of petroleum fuels were used in the transport sector, with the remainder used in the industry and power sectors. This is equivalent to the revenue from the petroleum levy of $2,768 million that can be attributed to the transport sector. This percentage of petroleum used in the transport sector is expected to increase over time. The revenue from the fuel levy goes to the federal budget and is not earmarked for the road sector.
For these countries (Bangladesh, Cambodia, Nepal, Pakistan and Uzbekistan), the actual growth rates are likely to be around 50 per cent–60 per cent of the calculated growth rates, bringing them more in line with the growth rates in the other sample countries.
On average, the energy-based revenues from fuel taxes and duties make up more than 60 per cent of the total road user revenues, forming as much as 75 per cent–80 per cent in Pakistan, Papua New Guinea, and Timor-Leste. In Pakistan, the energy-based revenues make up 1.5 per cent of GDP, while in Papua New Guinea and Timor-Leste, they form only 0.3 per cent–0.5 per cent of GDP, and the high score is only because of the lack of other road user revenues.
Copyright Business Recorder, 2024
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